One thing that irks me is how many people view cryptocurrency as deflationary. Sure, in the longterm they are, but how many coins will last that long? With over 100 coins out there now, many of them having block rewards for several decades, it is unlikely that any of them will ever reach the point where they are actually deflationary. Hell, it’s questionable if Bitcoin will be around that long. So for all intents and purposes, the majority of cryptocurrencies are inflationary.
The inflation of most coins can be modeled fairly simply. Let’s take bitcoin for example, and look at the total number of coins at the end of each year.
Year 1: 2628000 (baseline)
Year 2: 5256000 (100% increase)
Year 3: 7884000 (50% increase)
Year 4: 10500000 (33% increase)
Year 5: 11814000 (12% increase)
Many altcoins follow a smiliar model. All these coins being generated puts significant downward pressure on the market. Bitcoin has managed to do fine with all the exposure it’s getting, but many altcoins will get hit hard by this. What does this mean? For a coin that’s been for say, 2 months, over the next 2 months that coin will experience downward pressure equal to it’s current market cap. Since interest in altcoins tends to be frontloaded, the effects of this supply increase will eclipse monetary inflow, and price goes down.
This, of course, makes most altcoins an awful investment. They are unable to generate the interest necessary to keep the price stable, let alone increase. It is, among other reasons, why we must be very selective when choosing what to invest in. Newbies will often rush to be the first one to own a new coin, when this can be easily shown to be an overall losing plan. While this strategy used to work in the past, when there weren’t as many coins out there, it no longer does anymore. The game has changed.
Lately I’ve been big on bashing bad coins, maybe the next article will be on a coin I consider to be good.. Let me know what you guys want.